The finer route to China

The Chinese growth story remains well and truly intact despite concerns about inflation and asset-price bubbles. So argued Anthony Bolton, the UK's most renowned investor, . If you agree with him, don't buy his fund - buy the JP Morgan Chinese fund instead. It's cheaper, and has a longer track record.

Like Mr Bolton's Fidelity China Special Situations, JPMorgan Chinese is structured as an investment trust, so it can borrow to invest where appropriate, and use accumulated reserves to pay dividends (although the yield on its shares is small). However, it has a longer pedigree, having been established in 1993, and a wider mandate than Fidelity's offering. It focuses on investing in 'Greater China' companies headquartered in China, Taiwan or Hong Kong, using on-the-ground expertise and local presence. The portfolio is currently overweight Hong Kong and underweight Taiwan. By investing across these three markets, the fund provides a broader exposure to the investable universe of the region.

According to analysts at broker Winterfloods, JPMorgan Chinese's investment approach will vary by market. In China, a top-down view is taken with sector biases, while investment in Hong Kong is more bottom-up, with managers looking for value. The fund can be 90 per cent to 115 per cent invested and is currently 106 per cent invested, reflecting the managers' cautiously optimistic outlook. The fund's total holdings are normally between 40 and 60. Both JP Morgan Chinese and Fidelity China hold Bank of China, China Mobile and Ping An Insurance, but generally Fidelity tends to be more focused on small- and medium-sized companies.

It also uses a different benchmark. JPMorgan Chinese is benchmarked against the MSCI Golden Dragon index, whereas Mr Bolton's fund measures performance against the MSCI China index. Since the start of 2009, MSCI China is up 57 per cent compared with 71 per cent for the Golden Dragon, although the recent performance of both indices has lagged behind that of the broader Asian region.

Few fund managers can hold a candle to Mr Bolton's performance in the 30 years he managed money in the UK. But the jury is still out on whether he will be able to replicate that track record in the very different Chinese market. By contrast, JP Morgan Chinese is managed by Howard Wang, a manager who has already proved his mettle in Asian equities.

After Mr Wang took control of the JPMorgan Chinese fund in February 2006, it outperformed until the end of 2007. Performance suffered in the weaker markets of 2008, but over the last two years, the fund's performance has been stable and it has managed to outperform its benchmark over one and five years.

And crucially, JP Morgan Chinese is cheaper, currently trading on a narrow discount of 2.63 per cent to net asset value (NAV), whereas Fidelity China has traded at a premium virtually since inception.

While we are recommending the ordinary shares here, more adventurous investors may want to opt for the subscription shares (TIDM: JMCS, price around 19.5p). These can be converted into the ordinary shares at 168p per ordinary share at any time up until 15 May 2013, and represent a geared play on the ordinary shares. "With more than three years of their life remaining, the price reflects the time value in holding the subscription shares. We believe that on a longer-term view the subscription shares offer an attractive alternative to the ordinary shares," said Winterfloods' analysts.

Key fund data:

Source: Thomson Datastream, JPMorgan

Notes: Performance figures as at 21 February 2011

Top ten holdings as at 31 January 2011

Sector Allocation